Good day everyone and welcome to the SIRIUS XM Radio third quarter 2008 earnings call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Paul Blalock, Senior Vice President of Investor Relations. Please go ahead sir.

Paul Blalock

Thank you. Good afternoon everyone and welcome to SIRIUS XM Radio's Earnings Call. Today, Mel Karmazin, our CEO, joined by David Frear our EVP and CFO will review SIRIUS XM's third quarter financial results, and discuss some of the questions we have been receiving. At the conclusion of our prepared remarks, management will be glad to take your questions.

First, I would like to remind everyone that certain statements made during this call, might be forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.

These and all forward-looking statements are based on management's current belief and expectations and not necessarily depend upon assumptions, data or methods that may be incorrect or imprecise.

Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For information about those risks and uncertainties more information is contained in SIRIUS XM's SEC filings. We caution listeners not to rely unduly on forward-looking statements and disclaim any intent or obligation to update them.

As we began, I would like to caution our listeners today, that today's results will include discussions of both actual results and pro forma results. The pro forma results we plan to discuss today, will give effect to the merger with XM, as if it had occurred on January 1, 2007.

It will not give effect to the impairment charge, we will be taking in connection with the merger, and it will not give effect to other purchase price adjustments associated with the merger.

Listeners are cautioned to take special care to ensure accuracy in looking at today's report.

I'll now hand the call over to David Frear.

David Frear

Okay. Thanks, Paul. There is a lot to talk about this quarter. Now I'm not sure that the press release has yet come across the wires. We know it's somewhere out there, so it should be getting to you shortly. We apologize for not getting it out to you before the call.

The SEC closes within the hour today and some of you might know they are closed for Veterans Day tomorrow. So, our Q the whole filing will show up by the opening on Wednesday, and we just wanted to make sure you are aware of that as a result of the SEC being closed tomorrow.

So in the quarter we closed the merger I think we all know that. But the accounting for it is pretty complicated. And as a result, the GAAP financials are going to be difficult for investors to review and make sense of the operating trends in the business.

So as Paul mentioned, we've included pro forma operating results without the purchase accounting and the goodwill impairment effect that are consistent with our historical results as well as with the recent guidance that we've provided to you.

I will spend a few minutes going through those pro forma results, focusing my comments principally on the third quarter. Then I will come back around to discuss the key elements of the GAAP financials, including the purchase accounting and goodwill impairment effects.

Pro forma subscriptions grew 16.5% over a year ago driving the revenue up by approximately 16% or $83 million to total of $613 million for the quarter.

Our adjusted loss from operations excluding merger-related cost, showed a $94 million improvement to a loss of just $9 million in the quarter. If you follow along through the pro forma operating statement, when you get it (hopefully you've all gotten it now), you will see how we got there.

Programming was up year-over-year, but almost fully becomes absorbed in a one-time merger payment of $27.5 million to our programming partner.

Revenue share of royalties, as you might expect, was up $45 million, reflecting the $83 million in revenue growth, as well as the effect of the royalty catch-up from last January's decision of the Copyright Royalty Board, and some of you might remember that that catch-up was reflected in the fourth quarter of last year.

Since in the third quarter we have an overstatement regarding the increase, that will be self-correcting as fourth quarter results come through.

Customer service and billing costs were up, slightly less than the growth in our subscriber base. Sales and marketing costs were down 19% or $18 million. SAC was also down 19% or $30 million, driven by cost efficiencies.

General and administrative cost were down 5% year-on-year, engineering was down 30% year-on-year, and satellite and transmission costs were flat, and that's what we were able to accomplish in the first 60 days of the merger.

So let me talk a little bit about the GAAP financials. There are three things that you should think about here; first, they reflect the operations of the combined company from August 1st forward, meaning that prior year comparisons are tough to sort out because 2007 reflects the operations of SIRIUS only, not of XM.

Second, they reflect the effects of purchase accounting, which affect the balance sheet through significant increases to things like intangibles and including goodwill as well as liabilities and some other items. And they also affect the operating statement, as revenue in many expense line items are affected; I'll come back to that as well.

Finally, third, they reflect the impairment of goodwill we just recorded as a result of the decline in our stock price.

But I think the first item is pretty clear; the merger was effected for accounting purposes on August 1st and the results of that are reflected in the consolidated financials from that day forward. So a few minutes ago when discussing the pro forma's I spoke of an $83 million increase in the revenues for the third quarter.

In the GAAP financials, revenues increased $246 million for the third quarter, largely as a result of the fact that two months of XM revenues are reflected in the current quarter, while no XM revenues were included in the prior year's quarter.

This pattern is repeated in each of the income statement line items, and as you get to read through the 10-Q, you'll see where we white slated out the affect of acquiring XM in each of those line items.

The merger as well took a long time to get approved, nearly 18 months, and a lot changed in the world's capital markets during that period.

Pursuant to the accounting literature, the measurement date for valuation of the merger is the date that it was originally announced, that is February 19, 2007; a time when the stock was trading around $3.79. This produces evaluation for the considerations given in the essence of the stock that we gave to XM share holders in the merger of $5.8 billion.

Under purchasing accounting rules, we have to estimate a fair value of the assets and liabilities acquired as of the merger closing. We hired an evaluation firm to assist us in that effort and that work is not yet final.

Yet, nonetheless, we are obliged to record the acquisition in the quarter, and so we have a preliminary purchase price allocation from our evaluation expert on which we have based our accounting entries.

The preliminary evaluation of signs of fair values to the acquired assets like the satellites, the FCC lights and the trademarks, the subscriber base and other assets, and it also evaluate to the acquired contracts, distribution agreements, programming contracts etcetera, assessing whether the contract terms represent fair values in the marketplace today.

To the extent a contract is determined to be more costly than the current market; a portion of that excess is recorded as a liability in the opening balance sheet, effectively reducing future expenses on the contract and possibly increasing goodwill.

So based on the preliminary purchase price allocation, $6.6 billion of goodwill was recorded. And again, this allocation is preliminary; accounting rules allow for modification of purchase price allocations up to one year from the closing. We'll be working with our valuation expert to finalize this allocation in the coming months.

Now let's get to third issue; the goodwill impairment charge. Now that we've used the share price nearly two years ago to value the acquisition, to establish the amount of goodwill in the company's books, we have to assess as of September 30th of this year whether there is an impairment of this goodwill.

To do that, you should think of it as a mark-to-market, by using the stock price of about $0.64 as of the end of September, and the number of outstanding shares at that time. You'll find the market cap of the company's equity of approximately $2 billion.

Under the accounting rules, goodwill can exist if the fair value of the assets excluding the goodwill minus the liabilities doesn't exceed the market cap of the equity, and now since we write-off $4.8 billion of what we just wrote-off.

The rules are what they are and we follow the rules, which I feel to be a little confusing. We got a two year old equity price followed by mark-to-market now where's capital market in 80 years, and so we end up with the result that we have today.

So I think that the net of what you are seeing here is that you are seeing, I think GAAP financials that are going to take some time and some effort to understand, we are happy to spend that time with you to work through them.

But we've provided the pro forma operating results and expect to continue doing so in the future to help you in understanding consistency in the trends of the business that those pro forma figures are consistent with. The historicals we filed they are consistent with the models that many of you have been running and we'll work to help you understand that as well.

With that let me turn it over to Mel.

Mel Karmazin

Thanks David. I know it's difficult in the economic environment we are in and where our stock price is trading, to be very pleased and proud of our operating performance, but we must.

It is very impressive that with severely declining auto sales, high unemployment and a generally weak economy, that our revenue grew 16% on a pro forma basis in the quarter. Many other good companies are not growing as a result of the issues in the U.S. economy. So we believe showing double digit growth to be very impressive, especially if you compare SIRIUS XM's results to other media and entertainment companies.

If you look at the top three radio companies, Clear Channel is the number one radio revenue company, and they reported to-date third quarter revenue declining 7%. The second largest radio revenue company in America today is SIRIUS XM, whose revenue was up 16% as we said earlier. And the third largest radio revenue company is CDS that showed a 12% decline.

We are growing significantly, and companies larger than us and smaller than us are not. And this was in the most difficult quarter that most of us have ever seen. This performance bodes well on how SIRIUS XM should perform in the fourth quarter of '08, and '09, and beyond.

The 18.9 million subscriptions we reported as of the end of Q3, was a pro forma increase of 17% and is admirable performance considering the negative trends facing retail and auto production.

We are continuing to focus diligently on retention. In spite of all the pressure on the consumer, they continue to see the value of subscribing to satellite radio, as our self-pay churn is within our range of 1.6% to 1.8%. For the first nine months of 2008, our self-pay churn was 1.7%, the exact same as in the first nine months of 2007

Prior to the merger both SIRIUS and XM were very focused not just on growing revenue and subscribers, but controlling cost as well. Excluding one-time merger-related expenses on 16% revenue growth, our total operating expenses decreased $10 million during the third quarter of '08 compared to the pro forma Q3 '07 operating expenses.

Our adjusted EBITDA excluding one-time merger cost was a negative $9 million, as compared to pro forma Q3 '07 of $104 million EBITDA loss; $9 million loss this year; $104 million EBITDA loss pro forma last year. The adjusted EBITDA excluding the merger cost improved over 90% from last year. Obviously, the extraordinary synergies that we have identified, puts us on the clear path for SIRIUS XM delivering positive EBITDA in 2009.

As a result of continued financial discipline and third quarter performance, we are on track to have a smaller than previously forecasted EBITDA loss of $300 million versus $350 million for the full year of '08.

We have been asked when will we be EBITDA positive and not be a user of cash. Well, the answer is now very clear. It is in 2009 when we will have over $300 million of EBITDA. And after all cash expenses, including satellite expenditures, we will not have net cash outflow for the full year '09. And this positive trend will continue in subsequent years.

Operationally, we are performing well in a very difficult environment; revenue up 16%, operating expenses down, and over 19% improvement in adjusted EBITDA on a pro forma basis excluding merger-related costs for third quarter of '08 versus third quarter of '07.

Moving on to our debt maturities; the company is actively in discussion with both the holders of our existing debt, as well as a significant number of additional lenders who are considering putting new money in to SIRIUS XM.

Diligence is underway by these institutions. These lenders understand that the refinancing issues are macroeconomic in nature and not related to any operating failure on the part of SIRIUS XM. The banks we have been working with believe in our business plan and support the company.

We are especially focused on what was the $300 million SIRIUS February '09 maturity. That $300 million has now been reduced to $210 million using 3(a) (9), and we are hopeful and confident of shortly announcing refinancing of that trench. There is also May '09 and 12/09 XM debt, that must be refinanced and part of our discussions focused on these maturities as well.

We will continue to keep you informed on our progress, and would like to get this issue behind us as soon as possible.

The catalyst that's driving our remarkable transition from negative EBITDA to positive EBITDA and from a user of cash to a generator of free cash flow is the synergies created by the merger. We are very pleased that how quickly we are achieving these cost savings.

To date, the elimination of duplicate jobs at SIRIUS and XM will result in a reduction of approximately 22% of the combined workforce that existed prior to the merger. We have already captured '09 merger-specific efficiencies in programming, marketing, product development, broadcast operations, streaming, customer care, ad sales, the retail channel, the OEM channel, and at the corporate center. IT, terrestrial networks, and satellites will be captured with short term cost improvements soon, and very significant cost savings longer term.

The benefit of the merger is also resulting in an improved satellite radio consumer experience. Thousands of subscribers have been adding Best-Of to their subscriptions every day since the offer became available. I am sure it is not surprising to many of you that sheer pricing works.

This Wednesday we will be improving our programming lineup by providing XM subscribers with some of the great content that SIRIUS has and vice versa. As we rationalize our programming offering, not only will consumers benefit from the improved lineup on both platforms, but we will be producing significantly fewer channels and the elimination of duplicated programming will result in the company saving millions of dollars every year.

Subscribers will continue to receive the same number of channels, only now there will be even more desirable channels and with no additional costs. As a result of the merger, our even better content offering should help SIRIUS XM to reduce churn, improve conversion rates, as well as attract new subscribers.

In summary, we are focused on continuing to grow our revenue, taking full advantage of the merger and the efficiency created to control cost, which will resolve insignificant growth in EBITDA and free cash flow.

The merger has made us a stronger company. We are confident that we will work our way through the debt refinancing that needs to be done. I believe this economic environment helps to demonstrate the real value of our unique radio subscription business model.

We would like to now be taking your questions. Jim Meyer and Scott Greenstein will join us, and we'll be happy to take your call or questions. Operator, if you can start the process.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). We will go first to James Ratcliffe with Barclays Capital.

James Ratcliffe - Barclays Capital

Good afternoon. Wonder if we talk about the auto OEM segment for a little bit. In particularly, we saw that is happening with auto sales. What have you been seeing in terms of install rates for the OEMs? Has the mix changed either positively or negatively in terms of their concentration on satellite radio? Second, how much control do you have over the number of vehicles, the percentage of vehicles they choose to install the satellite radio. If you are not seeing the returns in terms of conversion, do you have the opportunity to bring those numbers down? Thanks

David Fear

Sure. So let me comment first. In the third we actually saw a good uptick in penetration rates, particularly at Ford and General Motors, as both of them took their penetration rates up significantly. I think you will find now that with Chrysler, Ford and General Motors, with our performance in the third quarter all three of those are at penetration rates that approach 70%.

In terms of the penetration by model, by vehicle line, and particular by trend level, that is an equation that were just beginning to really get our arms around and manage, now that we are getting good data from our partners who are penetrating in the above 50% range.

Yes we absolutely have the ability to work with them and they are also motivated to try to work within trend levels to maximize the conversion. It is not an easy process, but it is a process that we have our arms around and we are working on a lot.

James Ratcliffe - Barclays Capital

Thank you.

Operator

(Operator Instructions). We will next go Bart Crockett, JPMorgan.

Bart Crockett - JPMorgan

Okay, great. Thanks for taking the question. I was wondering if you could update us on your liquidity situation, in terms of whether we should look for cash generation or cash burn in the fourth quarter, relative to where you exited the third quarter.

In terms of just this environment with automakers citing cash constraints, Circuit City filing for bankruptcy, where do you sit in terms of vendors tightening terms with you or maybe being slow to pay you, and what should we look for in terms of working capital impact here in the fourth quarter?

David Fear

Okay. From a liquidity perspective, generally the fourth quarter is a positive cash flow quarter for us; I expect that to be the case this quarter as well that we say in the Q, I think you have heard Mel say that we are making the turn to positive cash flow now with realizing the synergies, and that is what we expect going forward.

For the most part things like the automakers and the retailers are that we actually are net debtors to them, as opposed to the other way around.

So as they go through challenges in their business that it does not really affect us from a working capital perspective. So unlike a consumer products company that might carry receivables from Best Buy and Circuit City and RadioShack and Wal-Mart that we do not have those kinds of assets on our balance sheet. So we do not have the same working capital effect.

Most of our working capital is driven actually by subscriber growth, right. The fact that subscribers on average are paying us about eight months upfront, and so we again generally on growth additions find that the amount we are receiving from subscribers exceeds the cost of acquiring them.

Mel Karmazin

I think the liquidity issue is the refinancing of the debt that comes due in 2009 line not anything operationally.

Bart Crockett - JPMorgan

Okay. So you expect that you have got sufficient cash through the refinancing at a minimum?

David Fear

Yes, we do.

Bart Crockett - JPMorgan

Okay. Then the other question I had is, in terms of your long term, particularly your free cash flow guidance. Can you give us any sense of what is included in there in terms of assumptions about spending on the satellite fleet, launches, construction and also interest expense?

David Fear

I think what we might do Bart is, why do not we work through that in your modeling, and we have provided the guidance we have provided on free cash flow, and so we do not have any more detailed guidance to provide in this call.

Bart Crockett - JPMorgan

Okay. All right. We can take that off-line.

Operator

Next we will hear from RBC Capital Market's, David Bank.

David Bank - RBC Capital Markets

Thanks. Two questions; the first is, the ARPU was actually a little higher than I might have expected, and I was wondering if there are any particular drivers there on the ARPU side during the quarter. What is your ARPU outlook for the next quarter?

The second question is on approximately $90 million of refinancing on the convert that you have done to date. Just some color on why it is that you refinance those, and why you did it with equity, and why only $90 million is the question?

David Fear

Okay. I think that David we recognize the world for what it is, right? So the traditional capital markets are not really functioning all that smoothly would be the nice way to say it these days, and so you do not see many companies going to market with convert deals or equity deals or high yield bond yields or syndicated loans that it seems like all of that is dried up.

As we look at the February maturities and one of the things we have been saying to investors for several weeks now is that, we remain very confident of refinancing that.

It is one of these things that you want to whittle away at from several different perspectives, and so one of the ways to whittle away at it is, there is the provision in the Securities Law called 3(a)(9) that allows us to do exchanges of debt for equity with the holders, and effectively retire that debt, which is due in a few months time early.

We obviously are going to have to do some a financing to retire the debt, and making that problem a little bit smaller is helpful now. We also have been talking about how we have under our debt covenants say $250 million secured debt basket.

So one of our objectives in looking at the $300 million outstanding was to do enough of the 3(a)(9)s to drive the outstanding amount below $250 million. Therefore, when we go out and complete some of these discussions that Mel referred to earlier, and effectively fill that basket, that the basket itself is sufficient to meet the remaining outstanding bonds. So that is why we have been doing the 3(a)(9)s.

In terms of the ARPU trend, I obviously cannot speak to your expectations. I can tell you that our mix of subscribers has remained very consistent across the multiple different plans which have different price points that we have generally been finding subscribers beginning now to go for the best of programming over as Mel again said, significantly more.

So then they are going for the lower-priced packages. We do have growth in our multi-subscription accounts, and so you mix it all up, you get the result you have got. I think the net way to look at it is, is that ARPU for the company has actually been very stable, and so that as you look at stable ARPU, stable churn, your growth in subscribers translates pretty directly to growth in revenue.

Mel Karmazin

There are a number of factors that enter into the ARPU, including second subscribers, as well as any special programs. As it applies to the packages that we are offering, clearly the 16.99 package where XM subscribers are opting for best of SIRIUS is the most sought-after, and that the packages with a price point below 12.95 are relatively modest in the number of people out of the thousands that are doing it everyday. Relatively modest number of people are opting for lower-priced packages.

David Bank - RBC Capital Markets

I am sorry, that was actually my follow-up question. Thanks Mel. When did you actually begin offering the 'Best of' package?

Mel Karmazin

In early October.

David Bank - RBC Capital Markets

Can you give us some indication of like penetration, or what percent were you able to upsell the 'Best of' through?

Mel Karmazin

It is probably premature to do that David. Let's get a little more experience under our belts, and we will talk about it in future calls.

Mel Karmazin

That is our position. It has been very encouraging. People have reacted very positively to these packages.

David Bank - RBC Capital Markets

Okay, thanks for letting me ask so many questions.

Operator

Next we will hear from Kit Spring with Stifel Nicolaus.

Kit Spring - Stifel Nicolaus

Did you give out the OEM conversion rate?

David Fear

Yes. The OEM conversion rate for the third quarter was 47% for the nine months; it is a little over 49%. The prior year period that both numbers and this is all on a pro forma basis were a little over 50%. So it is pretty stable, and there is not much of a change during the nine months.

On the quarter it is really more of a function if anything else of the increasing penetration rate. As Jim mentioned; pretty significant increases in penetration and a number of automakers. This calculation is a little more complex now with the number of different plans we have.

So GM and Honda for instance, on three month paid trials. The Chrysler on 12 month paid trials, and Ford on six months. So you have got a whole bunch of different sales periods with all coming together there.

I think the way you end up looking at it is, is that when you roll back to all those plans, you find significant increases in penetrations underpinning each one of them and leading to the result we see in the third quarter.

Kit Spring - Stifel Nicolaus

If GM or Ford went bankrupt or GM merged with Chrysler, would that change any of your contracts or make them available for renegotiation, and do you think it could either positively or negatively impact you?

David Fear

Well, a contract is a contract, right, and so if they merge, a deal is a deal, and if something different happens, they would go into court. We would have to see how they react to those contracts.

Remember that one of the things that is attractive to them in there is the revenue share, and if an automaker were to end up in court restructuring and rejected the contract, it throws all things up in the air. So I think there is actually pretty good chance that that would like to keep the contracts they have.

Mel Karmazin

Yes. I think from an asset point of view, our contract with the OEMs is a very strong asset because unlike most of the other vendors, we provide revenue share. So, we think that nothing would be apt to change.

I mean I can not predict what a court could do, but in the case of an acquisition of one of our partners, all of our contracts flow through to whoever is the acquirer. There is a successor that assigns clause that requires the new owner to fulfill their obligations under the existing contract.

Great. Thank you very much. Thanks for that long-term guidance; I think it definitely provides some more visibility. But, as you pass the numbers, I am curious what that assumes in terms of the OEM versus the retail component of those subscriber numbers?

I think also on that guidance, I think you had previously if I am not mistaken talked about $1 billion of free cash I believe by 2010. So given that, it seemed like your number came down a little bit. Is that to do with perhaps your satellite CapEx spending, or what else is causing that, particularly given that the EBITDA line seemed like stayed the same?

Mel Karmazin

This is Mel. I think the number you are referring to was some guidance that we had provided two years ago, which we recall specifically very well, but it was SIRIUS on a stand-alone company not on the combined consolidated company that continues to obviously have operating costs that are greater than one company, right.

So it has really nothing to do with anything other than the fact that the guidance shows you how strong a business model the company is. I will let David talk a little bit more to your question.

On one hand you are looking at a SIRIUS standalone company and the other you are looking at the SIRIUS XM combination.

Tuna Anobi - Standard & Poor's

Yes, I should have mentioned that you are absolutely correct, that was for the old SIRIUS, but I was actually trying to bake in the synergies that you had provided for the new company. So my thinking was that, given those synergies that actually leaves you in a better position, not in a worse position. That is probably a moot point now.

So let me get onto the next question then. On the impairment, just the $5 billion number; it sounds from the prepared remarks that it was entirely due to goodwill. I am just wondering if any of your FCC licenses were also affected by that write down.

David Fear

I think that you will find when the purchase accounting comes through, that purchase accounting applies only to the acquired entity. So there is no change in the carrying values of assets on the balance sheet of SIRIUS. The FCC license of XM is one of the assets that has been written up as part of the purchase price allocation, and as we go through and the Q comes out, you will have all the details of that.

Tuna Anobi - Standard & Poor's

Great. Lastly Mel, I have a question for you. One of the things I keep hearing, and I know that you have made it very clear that you are optimistic about the refinancing. The question keeps coming back, what is the Plan B here, because obviously you are not able to provide 100% assurance.

So that begs the question, what if this, particularly the near term maturity, the 210 that you talked about of the other 300 coming up, if things do not pan as you planned, are you going to perhaps significantly at? I do not know how much equity dilution that you can tolerate given all of these scenarios, or what other plans do you have on the back burner?

Mel Karmazin

I think you saw that we had $300 million of maturities due. We are now at approximately $210 million of maturities due. I told you that we have had discussions with lenders. We remain optimistic. I really do not want to get into any hypothetical. The company remains confident that we will in short order get the February '09 refinancing done.

Tuna Anobi - Standard & Poor's

Okay, fair enough. Thank you and good luck.

Operator

Next we will hear from Joe Stauff with CRT Capital.

Joe Stauff - CRT Capital

A couple of questions please. David, the $1.8 billion you had mentioned totaled $6.6 billion of goodwill that was recorded in the subsequent write-offs. The $1.8 billion remaining, just to clarify that is the current appraised value of the combined company? Is that right?

David Fear

Well, the $1.8 billion is what you might call the residual, right. So you have got the consideration paid, you have got the purchase price allocation, and then you have got this calculation of the market cap or the equity, which is then compared back to all those other things to produce a result. Goodwill is what is left over, right? You value everything else, and then what is left over has an impact in goodwill.

Joe Stauff - CRT Capital

Okay. Given your guidance that you have provided, is there any sense of ARPU growth assumptions, churn, to be understood by that that you are sharing?

David Fear

Well, we have not provided any guidance on either of those measures, but you have seen us say for a long time that we think our self-pay churn rate will be in the range of 1.6% to 1.8%. Sitting here today, you can look at our results and say that it remains consistently in that range.

I think you have also seen very, historically very stable performance of ARPU. Over time it also has remained relatively stable. For pricing actions that might be allowed at some point in the future or it might be taken at some point in the future, that you should expect pretty stable results.

Joe Stauff - CRT Capital

Fair enough. Thanks for taking the question.

Operator

Our last question will come from Todd Lumpkin, Canyon Capital.

Todd Lumpkin - Canyon Capital

Hi. Thanks for taking my question. I just wanted to ask about the environment. I think it was Mel who commented that we are in the worst auto environment anyone's ever seen. Obviously the retail environment is probably not much better going into the holiday season here.

How confident do you feel? I mean it seems hard to imagine that your business would not see a lot of pressure into the end of the year here and just how you think about your guidance in light of that?

I know (inaudible) to give guidance, but maybe just comment on what you are seeing in the business environment and how you cope with that?

Mel Karmazin

We think the environment sucks? I think that is a defined term, which obviously the automobile companies are very transparent in releasing every month their forecast. So it is not like we have a lot of information out there that you do not have. You know what they sell each month and what is likely to change.

The forecast that we have done is short-term and that is why we took down our year-end number of subscribers. We went from down to 19.1. It is not because we are not executing, and it is not like we are doing something wrong.

It is that unfortunately we do not have a whole lot of control over what cars are getting sold. We do our best. We help our car partners any way we can, but we are not the ones that are selling cars. So we are at the mercy of what happens. In providing the guidance, we are obviously cognizant of it.

We also obviously are aware of the consumer and the difficulty that the consumer is having. So, therefore, again we reflected our guidance. We wish that they had more money to buy Satellite Radio, but within everything that we could possibly do, we are doing it.

We have a very aggressive, prudent, expenditure advertising campaign that started this past weekend, you may have seen it. We are hoping to rejuvenate and add some excitement at the retail market for satellite radio.

I think anybody that is not cautious in providing guidance to investors in this environment is foolish, and obviously based on the facts that we get everyday, we continue to run our business in a very prudent way.

One last thing that I would like to say and that is that, our shareholders have begun to receive proxies for our annual meeting on December 18.

We have asked shareholders to authorize a reverse stock split, should the Board of Directors decide to do one. Our interest in a reverse split is motivated by requirements of NASDAQ for us to remain a listed company.

We also ask shareholders to provide the company with the authorization for additional shares. The merger with XM and the low stock price eliminated the cushion we had in authorized shares. We expect that our shareholders will approve these management and Board of Directors supported proposals.

So on behalf of Jim, Scott, David, Paul and myself, I want to thank you all for your interest in our company. Our Investor Relations department is available to answer any additional questions you may have, and have a good evening.

Operator

Ladies and gentlemen, that does conclude today's conference. We thank you for your participation. Have a great rest of your day.

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